It's Your Money  

Blowing smoke at the border

Canadian investors who head south of the border could be in for a new headache very soon.

Most investors realize that purchasing stocks in the cannabis sector is high risk and that they stand an equal chance of losing what they put in as they do in making money.

But how many are aware of the second risk of investing in this industry?

As Canada is set to legalize recreational use of cannabis on Oct. 17, a senior U.S. Customs and Border Protection official is warning that the U.S. does not plan to change its border policies. 

Todd Owen, executive assistant commissioner for the office of field operations, warned that

“Facilitating the proliferation of the legal marijuana industry in U.S. states where it is deemed legal or Canada may affect an individual’s admissibility to the U.S."

Mike Niezgoda, a spokesman for the U.S. Customs and Border Protection service issued similar warnings as well, stating that anyone using or investing in the sector could be barred entry to the U.S., maybe even for life. 

Owning even one single share of a company’s stock makes you technically an owner of that company. In the eyes of the U.S. federal law, that could see you branded as the owner of a company that sells illegal narcotics and therefore can't cross their borders.

There has been much excitement for many Canadians with cannabis related stocks and many investors have bought in hoping to make a quick buck.

Results have varied for sure in this highly risky and volatile sector – if you’re timing has been good, you may have done very well and if you didn’t time things right you could have easily lost a lot of money as well. 

Purchasing Canopy Growth stock on Jan. 1 of this year would have you roughly doubling your money as of Friday’s close. But holding Aurora Cannabis’ stock over that same period would have netted a minus 35 per cent return.

But regardless of your investment track record, owning any of these stocks could cause you big travel issues.

It is unlikely the average customs agent is going to ask what you hold in your portfolio these days, but these border guards have very broad powers to question Canadians and you never know

if the agent you get is simply having a bad day or doesn’t like you for some reason.

Many investors who haven’t directly purchased cannabis company stock may also be caught up by owning a mutual fund or other pooled investment that has cannabis companies as part of their underlying holdings.

Most portfolio managers are avoiding these investments due to the risks involved but a few outliers are holding some exposure.  

The odds of the average investor being caught up is likely not too high at this point, but the lack of clarity on how these laws will be enforced is troubling and the pointed warnings from the above-mentioned officials adds to the concern.

Take this as a warning if you are one of the 400,000 people who cross between the Canada and U.S. borders each day – border agent questioning could lead down the path of cannabis use or investments and if discovered, your entry could be denied. 


Pay now, later for education

As university students head back to school, many new parents are probably wondering just how they’ll manage to pay for post-secondary education by the time their little ones are ready. 

Once you consider tuition, accommodations, transportation, food and other expenses, the average year of post-secondary schooling in Canada costs $19,500. Assuming a three per cent rate of inflation, that equates to $33,197 per year 18 years from now. 

Continuing with the same three per cent inflation rate, a four-year program starting in 2036 would run a total bill of $138,884.   

So, the big question weighing on new parents’ minds – how am I going to pay for this bill?

The first answer is that you don’t have to pay this bill at all. The next generation is fully capable of applying for grants and student loans and taking responsibility for their own education expenses.

If you’re like many Canadians who don’t have enough saved for your own retirement yet, a financial planner might suggest that your own retirement savings are a larger priority after reviewing your overall fiscal situation. 

But for those who can help, what’s the best option? 

Pay Now: A lump sum investment of $48,655 today would grow to $138,877 in 18 years based on a six per cent average annual rate of return. Ideally, this money would be put into a TFSA account if you have the room so that the $90,222 of growth would be tax free.    

Pay Monthly: If you were to invest $325 per month in a Registered Education Savings Plan (RESP) account (also assuming six per cent average return) and add on the $500 per year in basic CESG grants (up to $7,200 max) that this RESP contribution would earn, you would end up with $138,390 in the RESP account in 18 years.  This would require a total investment of $70,200 of your own money in contributions. 

Pay Then: If you elect to wait until the child starts school and pay the full costs at the beginning of each school year, you would need to have the excess cash on hand to foot the bill that starts at $33,197 on year one and climbs to $36,275 by year four. 

Pay After: Most students can qualify for interest-free student loans while they’re in school. After graduation, you typically have 10 years to repay these loans and interest is charged during this time. Assuming an interest rate of 6.2 per cent which generates monthly payments of $1,555.88, you would end up paying a total of $186,705 which includes interest amounts of $47,821. 

One option that I often suggest to clients who have saved up money inside a RESP is to have the students take out student loans for the amounts that they need (since it will be interest free while they’re in school) and then offer to repay some or all of these loans upon graduation based on criteria that you’ve set out.

One parent might simply say that if they graduate, the loans are repaid, and another might add incentive/motivation by setting out a scale of repayment based on their final grades.

The RESP money would be pulled out of that account and set aside in another investment account until graduation which also allows it to continue growing for four more years.

Looking back at option No. 1 (pay now) and allowing the lump sum to grow until graduation (22 years) instead of for 18 years, you would only need to put away $38,539 to reach the same goal.  

If and how you help fund a child’s education is up to you, but there are several ways to go about doing so and some will end up costing you far more than others.

Consider sitting down with a certified financial planner professional to see what option works best for you. 

Running of the bull

On Aug 22, the U.S. stock market surpassed the 3,453-day previous record to officially become the longest bull market run of all time.

That is almost 9 1/2 years without seeing a major correction (a drop of 20 per cent or more). 

This is certainly good news for investors who have chosen to stay invested during this entire period but leaves many wondering what will happen next.

This current rally started in March 2009 following the financial crisis dubbed the Great Recession. This post-recession bull-run may be the longest in history, but it has also been one of the slowest, with many companies and countries still recovering from that big hit.

This slow recovery has many analysts predicting the current bull run still has a couple more years to go. I did a quick survey of various predictions and it showed the majority guessing it would end anywhere from six to 24 months from now.  

Seasoned investors and money managers know that the party can’t last forever. The run could be ended by U.S. political drama, a global trade war, emerging market instability or possibly even another yet unknown trigger.

The U.S. Fed has hiked its benchmark lending rate twice since January and is expected to raise it two more times by the end of this year.

Three of the past five recessions were preceded by rate hikes and these higher interest rates may convince more investors to move from stocks to bonds. They also increase the costs for companies and make expanding operations more difficult.

What we do know for sure is that this bull run will come to an end at some point and the odds are that it will do so sooner rather than later.

So, what should you do?

This is not meant to be a panic alarm telling you to sell everything and go to cash, but you should consider taking a more defensive position with your portfolio.

At bare minimum, you should look to rebalance your portfolio back to your original target allocations if the equity components have increased in overall weightings due to this growth.

Anyone who has an equity portfolio that lacks diversification, especially one that is mostly or all Canadian stocks, should look to diversify across different sectors and geographical regions.

Look to reduce exposure to companies with higher “bear beta scores” as well.   

Trying to time the market and guessing when you should be in or out is a dangerous game as nobody knows for sure when market events will occur.

But you should be comfortable with your overall plan and this is a great time to rededicate yourself to the basics of your financial plan, savings and debt reduction strategies.

Take steps now to ensure you’re well protected so that when the next major correction does come, you can sit back knowing that you’re ready to weather the storm.   


Money on the table

One-third of Canadians provide caregiving support or expect to in the next five years, yet an estimated 85 per cent of them are leaving money on the table in possible tax breaks.

Providing care for someone you love can be a rewarding experience, yet it can also be very costly. Many of these caregivers are making personal financial sacrifices and are often cutting into their own savings to provide this care.

Canadians who provides care to a loved one are doing so at an average cost of $430 a month.This figure is also expected to increase dramatically over the next decade as well.

So why are these caregivers not claiming the tax credits available to them?

The No. 1 reason seems to be a lack of understanding. The federal government has recently added to this confusion by changing the names of previous tax credits in order to present them as new features they introduced.

Another big reason for not claiming is the perception that these tax credits are too small and not worthwhile to apply for. Hopefully articles like this will help spur more Canadians to at least look at these tax breaks.

So what tax credits should you be looking into?

The Credit for Caregivers has a basic maximum amount of $6,986 on which you can claim a 15 per cent non-refundable federal tax credit for expenses incurred while caring for certain family members with a physical or mental infirmity.

In some cases, this credit can be shared by multiple caregivers supporting the same individual. 

The Medical Expense Tax Credit allows you to partially deduct out-of-pocket medical expenses and can be claimed by yourself or a family member that cares for you. This credit allows for expenses that exceed the lower of $2,302 or three per cent of one’s net income.

The Home Accessibility Tax Credit is a non-refundable credit worth up to $1,500 per year to complete renovations required to accommodate your needs. 

The Disability Tax Credit has certain medical requirements to meet eligibility that include an impairment that lasts or is expected to last at least 12 months and a doctor will need to provide documentation to confirm eligibility.

If qualified, the non-refundable credit is worth between $1,500 and $2,700 depending on which province you live in and may also make you eligible for a Registered Disability Savings Plan which carries additional government grants and benefits. 

The cost of caring for aging parents alone is estimated at $33 billion annually in direct and indirect costs that range from parking to reduced hours at the caregiver’s regular job. This figure doesn’t include costs of care for a spouse, child, grandparent, aunt or uncle.

If you are the provider or receiver of care in Canada, take the time to figure out what tax credits are available to you.

More It's Your Money articles

About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories